M&S sees higher margins as investments start to pay off

May 20, 2014 - 9:53:57 am

LONDON: British retailer Marks & Spencer sought to placate investors by forecasting higher profitability and lower capital expenditure as it reported a third year of falling earnings, hit by its underperforming non-food business.

Britain's biggest clothing retailer, which also sells homewares and upmarket food, said on Tuesday it made a profit before tax and one-off items of 623 million pounds ($1.05 billion) in the year to March 29.

That compares with analyst forecasts of 600-630 million pounds, with a consensus of 615 million pounds, and was down 3.9 percent on the profit made in 2012-13.

For the first time, M&S earned less in the year than its faster growing rival Next.

However, the firm said it expected its general merchandise (clothing, footwear and homeware) gross margin to grow by about 100 basis points in 2014-15 due to a more efficient supply chain, while its food gross margin was expected to grow by 10-30 basis points due to further operational efficiency.

It forecast another "significant" improvement in the general merchandise gross margin in the following two years and a further "step up" beyond that from investment in logistics.

M&S expects capital expenditure to fall from 710 million pounds ($1.19 billion) in 2013-14 to 500-550 million pounds in each of the next three years, which could give potential for any excess cash to be returned to shareholders.

Over the last three years Chief Executive Marc Bolland has spent 2.3 billion pounds addressing decades of under-investment to transform M&S into an international retailer reaching customers through stores, the web and mobile devices.

Though he has invested in redesigning products and stores and on overhauling logistics to complement a new Internet platform that went live in February, a new clothing team he set up in 2012 has so far failed to deliver a significant pick-up in sales.

The 130-year-old company, which serves 21 million shoppers a week from over 750 UK stores, said sales rose 2.7 percent to 10.3 billion pounds - well below a revised target Bolland set in 2012 to increase total sales to 10.8-11.5 billion pounds by 2013-14.

M&S said its new internet site would take four to six months to settle in and, as a consequence, would have some impact on general merchandise performance in the first quarter.

It said an improving trend in clothing sales that the firm saw in the fourth quarter had continued in stores, while its food business continued to outperform the market.

Shares in M&S, which ended the year with net debt of 2.46 billion pounds, closed Monday at 451 pence, giving a market capitalisation of 7.36 billion pounds.

M&S proposed a maintained dividend of 17 pence. (Reuters)

 

 

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